HO SHU KWONG WILSON v. CHIANG CHUN YUAN

CACV 168/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 168 OF 2002

(ON APPEAL FROM HCA NO. 3759 OF 2000)

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J U D G M E N T

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Hon Woo JA (giving the judgment of the Court):

Introduction

This is an appeal brought by the defendant against an order for costs made by Deputy High Court Judge Gill in the action.

2. By the action, the plaintiff claimed against the defendant for a sum of $3 million. The plaintiff used a sum of $3 million to subscribe for shares in China Health Enterprises Ltd. ("China Health"), which was a company with subsidiary and associate companies whose main objects were to provide medical services to staff of organisations. The basis for the claim was that it was a condition of the investment that the defendant guaranteed the plaintiff a refund of the money together with interest if China Health and its subsidiaries were not able to attain NASDAQ listing within a period of time. Alternatively, the plaintiff's claim was based on a collateral contract with the defendant to the same effect. The plaintiff gave credit for a sum of $58,000 to the defendant because this sum was allegedly a part payment made by the defendant under the said arrangement. The defendant denied the allegations and counterclaimed for the $58,000 paid by him to the plaintiff as earnest money for a subsequent sale and purchase of the said shares on terms to be agreed with the plaintiff, which had not materialised.

3. After a hearing lasting six days, in which the plaintiff and three of his witnesses and the defendant gave evidence, the Judge dismissed the plaintiff's claim and gave a written judgment on 19 November 2001 in favour of the defendant on the counterclaim. The basis for the dismissal of the plaintiff's claim was that the Judge was unable to be satisfied on a balance of probabilities that the plaintiff had proved his case. He was, however, satisfied that in the event as transpired, no subsequent agreement for the sale and purchase of the shares had ever been reached between the parties. He gave judgment for the defendant on the counterclaim.

The orders for costs

4. The Judge made an order nisi that there be no order as to costs. He gave a short reason for this order for costs in his lengthy judgment dated 19 November 2001, as follows:

"78. In the normal course costs follow the event unless the Court, in its discretion, decides on an alternative course. The defendant has succeeded in his defence and counterclaim. But I have already expressed my displeasure at his conduct, and that includes his performance in the witness box under oath. Accordingly I depart from the normal course and order that there be no order for costs."

5. The displeasure of the Judge over the evidence of the defendant can be found in other parts of his judgment. The following remarks of the Judge serve as ample demonstration:

"What has emerged is that the defendant clearly cannot be relied upon as a witness of the truth, which he is prepared to distort or ignore if it suits his purpose."

"In short the defendant has revealed himself to be a man of low moral character, capable of bending or ignoring the rules as the need arises and not averse to fabricating sworn testimony to protect his interests. Certainly his evidence cannot be relied on."

6. The Judge also dealt with the plaintiff's evidence. His conclusion was that the plaintiff had failed to prove his case. His reasons can be summarised in the following passage:

"Some of the matters I have reviewed favour the plaintiff's account. But in my view they are outweighed by those which detract form it."

7. There were a number of matters relating to the defendant's conduct of and connection with the business of China Health and its various associate or subsidiary companies that had been probed during the trial. The Judge was obviously unhappy with the manner in which the defendant performed in cross-examination. The main dissatisfaction of the Judge with the defendant's evidence seems to relate to his answers in cross-examination on the Consulate General of Canada's termination of a contract for medical services to be provided by a company known as New Pioneer allegedly having close connection with the defendant or China Health, as a result of which China Health suffered loss in its business. The defendant denied that the termination was caused by a conflict of interest that while New Pioneer provided medical services to applicants for emigration into Canada who were subject to passing a medical examination conducted by it, another company, New How, allegedly also having close connection with the defendant, was at the same time running an emigration consultancy business. He also denied that one of his doctors had issued medical certificates without having personally examined the applicants. In fact, this was what was stated in a letter from the Consulate, which letter was produced and put to him.

8. After the order nisi for costs had been made, the defendant took out a summons in an attempt to adduce fresh evidence to support his dissociation with New How and to support his denial of the cause of the termination, and at the same time seeking a variation of the costs order. On 4 January 2002, after hearing arguments from counsel for both parties, the Judge refused to allow the new evidence to be adduced and also refused to vary his order nisi as to costs. He made an order for costs of the application to introduce the new evidence and to vary the order nisi against the defendant. It is against the refusal to vary the order nisi for costs and the order for costs relating to the application to vary that the defendant now appeals, the Judge having granted him leave to do so.

Statutory provisions

9. Section 52A of the High Court Ordinance, Cap 4 provides:

"(1) Subject to the provisions of rules of court, the costs of and incidental to all proceedings in the Court of Appeal in its civil jurisdiction and in the Court of First Instance, including the administration of estates and trusts, shall be in the discretion of the Court, and the Court shall have full power to determine by whom and to what extent the costs are to be paid."

10. Order 62, rule 2 of the RHC provides:

"The powers and discretion of the Court as to costs under section 52A of the Ordinance (which provides that the costs of and incidental to proceedings in the High Court shall be in the discretion of the Court and that the Court shall have full power to determine by whom and to what extent the costs are to be paid) ... shall be exercised subject to and in accordance with this Order."

11. There are other provisions in Order 62 that are relevant to this appeal. They are set out below for ease of reference:

"rule 3 (2) If the Court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any proceedings, the Court shall, subject to this Order, order the costs to follow the event, except when it appears to the Court that in the circumstances of the case some other order should be made as to the whole or any part of the costs."

"rule 7 (1) Where in any cause or matter any thing is done or omission is made improperly or unnecessarily by or on behalf of a party, the Court may direct that any costs to that party in respect of it shall not be allowed to him and that the costs occasioned by it to other parties shall be paid by him to them.

Rule 7 (2) Without prejudice to the generality of paragraph (1), the Court shall for the purpose of that paragraph have regard in particular to the following matters, that is to say-

(a) the omission to do any thing the doing of which would have been calculated to save costs;

(b) the doing of any thing calculated to occasion, or in a manner or at a time calculated to occasion, unnecessary costs;

(c) any unnecessary delay in the proceedings."

Authorities on costs

12. The above provisions reflect the principles on costs decided by authorities. Para 62/2/6 of the Hong Kong Civil Procedure 2002, Vol 1 states:

"Wide though the discretion is, it is a judicial discretion and must be exercised on fixed principles, that is according to the rules of reason and justice, not according to private opinion (Sharpe v Wakefield [1891] A.C. 173); ..."

13. It has always been recognised that the usual order for costs is that following the event, namely, that the successful party shall have his costs against the unsuccessful party. It is also usual for an order for costs to be on a party and party basis, instead of on the higher scales of solicitor and own client, common fund and indemnity bases. However, there are exceptions to these general rules, depending on the circumstances of the case. Thus, in Ritter v Godfrey [1919] KB 47, an English case, the trial judge made no order as to costs where the defendant was successful though the decision was reversed by the Court of Appeal. In Baylis Baxter v Sabath [1958] 1 WLR 529, another English case, the plaintiff who succeeded on both its claim and on the defendant's counterclaim was deprived of costs altogether. In Lakhan v Wu Wing Tat [1987] 3 HKC 54, the Court of Appeal reversed an order of the trial judge who allowed a certificate for two counsel instead of three counsel who represented the successful plaintiff. In Wong Sing Fung v Fung Ming Stainless Engineering Co Ltd [1987] HKCU 69, the District Court on an Employees Compensation claim deprived a successful claimant of his costs. In Choy Yee Chun v Bond Star Development Ltd [1997] HKLRD 1317, costs were ordered to be on an indemnity basis.

14. These cases also deal with the manner in which the appellate court should approach an appeal against an order for costs, in view of the fact that it involves a discretion exercised by the trial judge. The advantage of the personal experience of the proceedings that the trial judge has over the appellate court cannot be over-emphasised. In Baylis Baxter, Jenkins LJ observed at p 533:

"The judge has seen and heard the witnesses and attended to the whole course of the proceedings, and he is obviously in the best position to decide whether one side has behaved so badly in the matter as to justify that party being deprived of costs."

15. In Lakhan, Roberts CJ stated at p 58H of the report:

"The cautious approach which an appellate court should adopt to an appeal on costs was emphasized by Stephenson LJ in Alltrans Express Ltd v CVA Holdings Ltd [1984] 1 WLR 394, 400:

'We must be very careful not to interfere with the judge's exercise of the discretion which has been entrusted to him. We can only do so if he has erred in law or in principle, or if he has taken into account some matter which he should not have taken into account or has left out of account some matter which he should have taken into account; or - and this is an extension of the law which is now, I think, well recognized - if the Court of Appeal is of opinion that his decision is plainly wrong and therefore, must have been reached by a faulty assessment of the weights of the different factors which he has had to take into account.'"

At 61D, Roberts CJ concluded:

"In such circumstances, it would be wrong for an appellate court to substitute its discretion for that of the trial judge, unless satisfied that he was plainly wrong."

16. In Wong Sing Fung, the Employees Compensation case, there were two hearings, in the first of which the plaintiff was awarded compensation just over the amount paid into court by the employer to satisfy the claim, and during a retrial ordered by the Court of Appeal, the court gave judgment for the claimant in an amount less than that that had then been paid into court. The judge made no order as to costs relating to the first trial and awarded the employers the costs of the second trial. On an appeal against the costs orders, Kempster JA said at p 3:

"...the questions falling for our decision are whether or not there was material upon which the judge could properly so exercise his discretion as to award the costs of the second hearing to the employers and to make no order as to costs of the first hearing and whether it has been demonstrated to us that he erred in law, took into account some factor that he should not have taken into account or omitted to give weight to some factor that he should have taken into account."

In dismissing the appeal, Kempster JA found that the trial judge took the view that not only had the claimant grossly inflated his claim at both hearings but in so doing had been guilty of a degree of mendacity which could be categorised as misconduct. He concluded that the trial judge had material upon which he could properly exercise his discretion as to costs in that way that he did. After referring to Baylis Baxter, Cons VP agreed with Kempster JA and stated:

"...when considering what award of costs to make with regard to a successful plaintiff, the judge may take into account the misconduct of the plaintiff with regard to those proceedings."

17. In Ritter v Godfrey, the English Court of Appeal drew a distinction between depriving a successful plaintiff and depriving a successful defendant of costs. At p 53 of the report, Lord Sterndale MR observed:

"The principle as to the exercise of discretion is the same in the case of plaintiffs and defendants, but it is clear that considerations sufficient to justify a refusal of costs to a plaintiff are not necessarily sufficient in the case of a defendant, for the former initiates the litigation while the latter is brought into it against his will.

Speaking generally, I think it may be said that, in order to justify an order refusing a defendant his costs, he must be shown to have been guilty of conduct which induced the plaintiff to bring the action, and without which it would probably not have been brought."

18. In the same case, Atkin LJ stated the basis for depriving a successful defendant of costs more comprehensively. At pp 60 and 61, he concluded after referring to a number of authorities:

"It is not easy to deduce from these authorities what the precise principles are that are to guide a judge in exercising his discretion over costs. And yet the discretion is only to be exercised where there are materials upon which to exercise it, it seems important to ascertain the principles upon which a judge is to discern whether the necessary materials exist. In the case of a wholly successful defendant, in my opinion that the judge must give the defendant his costs unless there is evidence that the defendant (1) brought about the litigation, or (2) has done something connected with the institution or the conduct of the suit calculated to occasion unnecessary litigation and expense, or (3) has done some wrongful act in the course of the transaction of which the plaintiff complains. ..."

"If there is evidence of facts falling within the three classes above mentioned, then an appellate Court will not interfere with the discretion of the trial judge, even though they might not have come to the same finding of fact or exercised their discretion in the same way."

19. In Choy Yee Chun, Stock JA said a p 1337A:

"It is well established that this Court will not interfere with the exercise of a judge's discretion in the award of costs unless it be shown that he failed to exercise the discretion, or exercised it upon a false principle, or did not exercise it judicially."

The facts and grounds of appeal

20. The Judge had given a very detailed judgment in which he analysed the evidence given by both parties. He set out various items on which he disbelieved the defendant and found him not only distancing himself from various associate or subsidiary companies of China Health but most important of all departing from the truth in order to serve his own interest. All these resulted in his findings and remarks including those referred to in para 5 above.

21. Before us, the defendant was unrepresented. He challenged the Judge's making no order for costs in his favour mainly on four grounds, which are similar to those raised in the notice of appeal, namely,

(1) that he was successful in his counterclaim and the plaintiff failed in his claim;

(2) that all the areas in which the Judge found his evidence unbelievable and unreliable or found him a dishonest witness related to matters peripheral to the main issue which was whether there was an oral agreement that he had promised to buy back the plaintiff's shares in China Health if there was no listing of the company, and the Judge should not have relied on the peripheral matters to deprive him of costs;

(3) that he had, during his cross-examination, been ambushed by the production of documents by the plaintiff and if he had been allowed to produce the new evidence that he sought, but failed, to adduce after the judgment, he would be able to demonstrate that the Judge's impression of him as a witness, which was the basis for the order for costs, was wrong; and

(4) that the Judge also disbelieved the plaintiff's evidence that there was such oral agreement, and therefore the wasting of the court's time as well as the parties' costs was a result of the plaintiff's fault in the conduct of the trial as much as his.

22. Regarding ground (1), from the judgment and especially para 78 thereof cited in para 4 above, it can be seen that the Judge was fully aware that the costs order he made was out of the normal course that costs should follow the event. The fact that the defendant succeeded on the claim and the counterclaim was clearly in the Judge's mind. What we need to consider is whether on the principles stated in the authorities cited above, the Judge was plainly wrong or if he had no material before him for him to exercise his discretion on costs in the way he did.

23. On grounds (2) and (3), the defendant relied on various passages in the transcript of the proceedings at the trial to show that the Judge had on various occasions during his cross-examination described expressly the matters concerning China Health's subsidiary or associate companies as peripheral. They are indeed peripheral to the main issue whether there was an oral agreement as alleged by the plaintiff to found his claim. However, the line of cross-examination was taken by counsel for the plaintiff because in para 18 of the defendant's 15-page witness statement, which he confirmed in-chief when testifying, while admitting that in a meeting on 7 December 1999 amongst fellow shareholders the plaintiff claimed that he (the defendant) "should be responsible for all the loss he (the plaintiff) has and would have suffered in investing in China Health", the defendant dissociated himself from those companies and the losses suffered by them. The defendant's involvement with the subsidiary or associate companies was probed and when the plaintiff's legal representatives found the explanations given by the defendant contrary to documents, counsel put such documents to contradict him. This was how he was discredited which resulted in the Judge disbelieving him.

24. The defendant attempted to adduce fresh evidence to reverse the findings of the Judge regarding his evidence by issuing a summons. However, his application was refused by the Judge with costs. There is no appeal from that refusal and the impression that the Judge formed of him as described in the judgment stands. As an appellate court being charged with an appeal on costs, we are not entitled to go behind the refusal of the application to adduce fresh evidence, the propriety of which refusal is not an issue before us. While we feel that the Judge had been too lenient to allow lengthy cross-examination on peripheral matters, mainly on credit, we are sympathetic to both the Judge and counsel conducting the cross-examination who found before them a witness who was evasive and at least economic with the truth, which as it turned out, could be exposed by documentary evidence that the plaintiff's legal representatives were alert enough to put their hands on at the opportune moment. Indeed, it seems to us that the attempt to adduce fresh evidence and this appeal has been intended equally, if not more so, for recovering costs as for clearing the defendant's name. There is no merit in ground (2) and ground (3) is not properly raised as there is no appeal from the Judge's refusal of the defendant's application to adduce fresh evidence.

25. Regarding ground (4), it is only necessary for us to cite a passage in the judgment of Jenkins LJ in Baylis Baxter, where he said at p 533:

"...it seems to me, once it is conceded that the credibility of the witnesses and the conduct of the parties in regard to the case they allege and seek to prove is a relevant matter for a judge to take into account in dealing with the question of costs, any comparison to be made of the conduct or misconduct of the parties on each side is a matter for the judge, and he is entitled to weigh one against the other and if he finds that one party has behaved particularly badly, although in the end successful in his claim, that is a matter which he can take into account, even though the conduct of the other party might appear to be equally or almost equally culpable."

26. The Judge did not accept the plaintiff's evidence and he disbelieved the defendant. He allowed the counterclaim because it was closely linked to the claim. When he was not satisfied on a balance of probabilities that the claim was proved, the counterclaim would inevitably be allowed on the same basis. However, his impression of the defendant was that he was a man of low moral character and scant with the truth, while he did not make the same finding regarding the plaintiff. The Judge had the advantage of seeing the witnesses and handling the trial for six days, whereas we can only see the proceedings on paper. In our view, there are sufficient materials as shown in his judgment why he reached those conclusions. The defendant's conduct in preparing his witness statement as well as in giving evidence had unnecessarily lengthened the proceedings and occasioned added expenses. This Court will not interfere with the Judge's order as to costs insofar as he could rely on those materials for the exercise of his discretion. While each of us in this Court might have a different view on what order for costs we would make if we were to exercise our own discretion as a trial judge of this case, we are not satisfied that the Judge was plainly wrong in making the order as to costs as he did. It goes without saying that the Judge's dismissal with costs of the application to vary his order nisi for costs cannot be disturbed.

Conclusion

27. In the circumstances, the appeal must be dismissed. We also make an order nisi that the costs of the appeal be borne by the defendant.